I'm trying to get my head around the customising of templates, and hope someone can shed some light please?

I'm using the latest WooTheme Sliding with WooCommerce 2.0.7

From what I understand, all the WooCommerce template files reside in:
/woocommerce/templates/ directory.

You also have the files:
/woocommerce/woocommerce-template.php
/woocommerce/woocommerce-functions.php

If you want to customise a template then you copy the file you wish to edit to:
yourtheme/woocommerce

You can also add code snippets (actions, etc) in the functions.php of your theme.

1) So, do you edit the actual template file directly (yourtheme/woocommerce) or do you edit the functions.php file in your theme, which then reads the template file loccated in (yourtheme/woocommerce) and results in an override?

2) I for example had to change the "display name" of the "Cart" Button to read "Basket", so I edited the file /woocommerce/woocommerce-functions.php with:

$woocommerce->add_message( __( 'Basket updated.', 'woocommerce' ) );

Is this correct? Or will this file be overwriten when I upgrade?
Should I copy /woocommerce/woocommerce-functions.php to yourtheme/woocommerce root folder?? and then make the edits?